IN the past week we have seen another collapse of our money system. After about two months of relative stability, the rate ran to 25:1 (Zimbabwe dollar to the United States dollar) on Thursday and everyone was saying it is going to go to 30 to 1.
By Eddie Cross
Just like the era from 2000 to 2008 when we simply printed cash and as a result ended up with the highest rate of inflation for nearly 100 years, this time the Reserve Bank of Zimbabwe used its capacity to print money electronically and the beneficiaries then used the money to buy real money and our exchange rate fell through the floor.
Those of us who live in this nuthouse said, “here we go again”, the inmates have taken over the asylum. We somehow break all the records – almost deliberately, and people who live in “normal” societies or countries look on in bewilderment. We hold the record for inflation, now we must have just been through the fastest devaluation ever. We are near the bottom of almost every social indicator and we seem to do all these things to ourselves, effortlessly.
Our bulk tanks are full with fuel stocks – but we have queues miles long. We have 10,000 farm dams, a million hectares of irrigation capacity on deep rich soils, yet we are short of all basics and half our population is on food aid. We have mineral riches of every kind you can name, yet our exports are half those of Zambia. We have ample raw water supplies but half our urban population has no water supply from our city and town administrations.
We have over 100 major hospitals; 1,600 primary health care centres and we produce our own doctors and nurses but basic health services for 90 percent of our population are non-existent. In the same period when China has lifted two thirds of its population out of poverty to middle class status and raised life expectancy from 34 to 65 years, we have halved our life expectancy and become one of the poorest countries in the world on a per capita basis.
What has gone wrong? I think it is time to go back to basics.
Since we had a new government elected in 2018, we have done a great deal – much of it obscured by the bad things that are going on. Our macro-economic fundamentals are now almost all under control and within acceptable limits. We have an economy that is being liberalised and free market conditions permitted after decades of control and restrictions. But like East Germany after the Wall came down, the people have stores full of goods that no one can afford.
We have taken the pain of austerity and adjustment but there has been no sign of a turnaround or an increase in job availability. If this carries on for much longer, social unrest and instability is inevitable. What can we do about this situation – and that is a question for everyone, not just the elite? Here are some suggestions.
The first is to recognise that if you have two oxen pulling a plough and one is completely out of step with the other, you are not going to get much done and might even break the plough itself. We cannot have a Ministry of Finance doing all the right things and the Reserve Bank exactly the opposite. What has gone on in the past few months in that great green tower block is a complete disgrace and needs urgent remedial action to bring its policies and activities into line with those of the ministry and the needs of the country.
Secondly, I would completely liberalise the market for foreign exchange. I would establish an interbank market for hard currencies in the Reserve Bank and demand that all foreign exchange earnings, from whatever source, be traded on the market on a willing seller/willing buyer basis and then provide for all domestic market transactions to take place in local currency.
I would instruct the RBZ to determine a target exchange rate and then to buy and sell currency on the interbank market on a daily basis to achieve such targets and maintain some stability. I would maintain the local currency at a relatively weak position to boost exports and curb imports and to foster domestic industry.
The third option is to allow free market forces to determine prices and values throughout the economy based on supply and demand. If we abandoned price control for energy – allowed fuel and electricity prices to rise to a level where demand meets supply, then load shedding would vanish and the queues for fuel would disappear.
Remove the monopoly of ZESA and the fuel cartels and allow easy access to the market using State-owned distribution systems – pipelines, railways and roads and the electrical distribution system. The market will do the rest.
My next choice of action would be the import and sale of key bulk commodities such as fuel, fertiliser, maize, wheat and oilseeds. Fuel we are almost there and open access to private traders is about to happen, but the rest are still bedevilled by domestic monopolies (the GMB) and corrupt traders and businessmen who use the system of funding and controls to secure the right to buy and sell these products at above market premiums. Just let the private sector take this over – no foreign exchange allocations. Put all foreign earnings through the interbank system and sell foreign exchange on an open market system and then use the global market for these key commodities and allow big international traders to position stocks at world market prices in the country at key distribution points. Allow anyone with hard currency to buy their requirements from the distribution centres with stock in bond.
My next choice for action would be to secure property rights as inalienable and to give everyone who is using property for productive purposes or housing, security. This would be in the form of freehold rights for all urban housing and buildings, title rights for all who are using mining rights to extract minerals and precious metals and finally some form of bankable tenure over farmland.
We have over one million new homes in urban areas that have no title rights – if we valued each of those at, say, US$100,000, the total value of the rights so awarded would be US$100 billion in new asset value. If we did the same for our miners, it would also create value to the extent of many billions of dollars while bankable tenure for our 34 million hectares of farmland would unlock billions of dollars in liquidity for farm activity and development. The cost to us is virtually nothing and it can all be done using modern technology in a very short time.
We need to hand over our main trunk roads to the private sector as toll roads and allow them to operate these roads on a business basis. This would take care of all the major trunk routes serving regional markets and keep Zimbabwe as a hub for transit movements. Then I would convert Zinara into a collection agency for funds to finance road repairs and construction by all local authorities. This would see to it that our urban and rural roads are properly maintained by local authorities elected for this purpose.
If we did all of the above, I can assure everyone that most of our current problems and hardships would vanish. Perhaps one last suggestion, I think we should stop collecting taxes in the traditional way altogether – scrap VAT, PAYE, Company Tax and all other forms of taxation except border duties on imports of finished goods and raise what we need to run government through a simple, single tax on all electronic transactions. No tax audits, no tax returns, no Zimra, just a handful of financial institutions taking a small cut on every transaction. Efficient and comprehensive – taxing all who live and work in Zimbabwe, even those in the underground economy.
Am I dreaming? I am looking into the future and seeing just how great it might be, instead of the nightmares of the past.
Eddie Cross is an economist and sits on the Monetary Policy Committee advising the Reserve Bank of Zimbabwe